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Meet Your New Media Company: Facebook

Social Network Starts Movie Rentals, Threatening Apple, Netflix, Hulu

A big, powerful wild card just entered the movie distribution business. Warner Bros. Entertainment announced today it will begin distributing movies for sale and for rent through Facebook, beginning with "The Dark Knight." Initially it will be available for rental for $3 or 30 Facebook credits. Ultimately, other Warner movies will be available for both rental and for purchase.

Heath Ledger in Dark Night

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Facebook is already the fastest-growing video service, so adding movies and, one would presume, TV episodes, should accelerate that. Facebook was the sixth-largest video provider in January, according to ComScore, ahead of Microsoft, Turner and Hulu. Unlike Hulu or YouTube, Facebook (thanks to Zynga) already has a robust credits marketplace made up largely of people buying virtual goods for games like "Farmville" and "Mafia Wars."

Hulu and Apple's iTunes have plenty of content and have been working to add social functionality to their services. Why? Because while search is great, TV and movies are social experiences, and they believe that social connections should play a big role in the discovery of content. People want to know what their friends are watching, and Facebook is best positioned to facilitate that.

The big question is how far YouTube goes into movie and TV sales and rentals. Right now YouTube has a limited catalog of movies for rent, such as "Reservoir Dogs" for $1.99, and via ad-supported streaming, like Jackie Chan's "The Young Master." YouTube's strategy seems pretty clear: It won't pay big Hollywood fees for content. Rather, it's looking to cultivate a new market for short-form video that exists largely outside Hollywood.

"The Dark Knight" isn't a new release (2008), and Facebook appears to be getting the same terms as iTunes, which rents the film for $2.99 and sells it for $9.99. One thing Facebook (and Netflix) have that Apple doesn't is a beachhead as an app on most internet-connected TVs.

Another way they're similar: Facebook takes a 30% cut of credits transactions, just like iTunes. Still, if Facebook allows studios to sell their wares directly and set their terms, there's no reason its catalog won't expand quickly. Netflix shares opened nearly 3% lower on the Nasdaq the morning this deal was announced.